This course weds business strategy with the principles of microeconomics. It offers valuable a powerful toolbox together with cases and lessons across all major functions of business, management, from finance, operations management, and marketing to human resource management, organizational behavior, statistics, and, of course, business strategy.

Taught By

Dr. Peter Navarro

Professor

Transcript

[MUSIC] Have you ever heard this expression? Nobody ever said life was fair. Well nowhere is this more evident than in the labor market. While sports stars and Hollywood starlets earn millions of dollars a year, everyone from nurses and teachers to fast food clerks and garbage disposal workers earn far less. The question of course is, why does some people earn so much more than others? Why do doctors earn 15 to 20 times more than life guards even though both are saving lives? And why does a college graduate likewise earn substantially more than a high school dropout? These questions are all or more important, because the wages you will earn in your lifetime will likely be the single most important determinate of your own economic welfare. So let's start to try and answer these questions by asking two more. What determines the wage rate? And, why might that wage rate rise or fall? Let's try to answer these questions with the help of our old friends supply, demand, and equilibrium. [MUSIC] Take a look at this snapshot of a perfectly competitive labor market. The wage rate is on the vertical axis and the quantity of labor is on the horizontal axis. The demand for labor slopes downward, and the supply of labor slopes upward. And let me simply assert for now that the equilibrium wage rate in this market will be W* where is supply and where is demand. So how might this wage rate rise or fall. Take a minute to think about that as we pause the presentation. [MUSIC] Well, one way the wage rate might rise is if the demand curve for labor shifts up. And as we shall see, this might occur if for example worker productivity increases. Alternatively, labor supply might increase. This might happen because of an increase in migration, or perhaps more women join the workforce. And therefore an increase in the labor force partition rate. As you can see, in both cases this would shift the supply curve of labor out and wages would fall. And that's one big reason why immigration both legal and illegal is such a hot political topic in many countries. At the same time, the wage rate might be affected by our assumption about labor market structure. For example, workers might organize into unions. In this case, they would exert monopoly power in the market and wages might rise to W**. But note that the number of people actually working is shown by a fall in the quantity of labor. Alternatively, workers might be unorganized and there might be only one employer in the market. This is the so-called company town monopsony situation, and an example might be the Anaconda Mining Company, a major employer in Butte, Montana in the United States. In economics, we do indeed refer to this situation as monopsony, only one buyer. And in this monopsony situation you may not be surprised to learn the wage rate will not only below W*. The number of workers actually employed will be less than in the perfectly competitive labor market outcome. Okay, that's the overview. Our job now in our next module is to come to better understand each of the key elements of the labor market that I have outlined. [MUSIC]

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